The corona crisis exposes problems that have long lurked beneath the surface. Solutions that were previously dismissed as radical now suddenly seem quite acceptable. De Volkskrant examines five economic prospects and what they have to offer. Now and after the crisis.
The consequences of the corona crisis are extensive and require far-reaching interventions. In a short time, more changes than previously thought. Entire sectors are disappearing, millions of employees are suddenly out of a job and debts are mounting rapidly.
But the crisis mainly exposes problems that have existed under the surface for some time. Because why do the self-employed do not have a better safety net? Is our debt approach effective? And why are life-saving medicines owned by a few companies?
Ideas that were previously dismissed as “radical” suddenly appear as policies to tackle the crisis. De Volkskrant looked at five of these economic prospects. Can they solve the crisis and perhaps even bring about lasting change?
Remission of debts
An idea from biblical times re-emerges, according to Dutch Volksrant: forgiveness. “We have to see debt differently,” says Arjo Klamer, professor of cultural economics at Erasmus University. “It is not just a problem for one person, but also for the creditor and the community around it.”
As a former alderman for Social Affairs and Participation in Hilversum, he knows how paralyzing unsustainable debts can work.
“You are behind with something, and before you know it the envelopes tumble over each other. What started with a few hundred euros quickly turns into thousands of euros. “
That while financial problems are not always the “debt” of the debtor. No one can foresee when the housing market collapses. If you just end up in a divorce or you lose your job, the mortgage becomes a millstone around your neck.
According to Klamer, we wrongly see debt as an individual’s misstep. “It is an entire industry. Installment sales, such as at Wehkamp, but also credit card companies and bailiffs exist by the grace of debt. “These companies mainly earn from customers who pay late and who then impose high interest rates and fines. “But the government also raises a lot of money with fines on fines.”
Klamer proposes to include standard clauses in contracts for installment purchase or a bank loan: in which situation does the debt expire? For example if someone falls ill or suddenly earns much less. “Whoever lends money also consciously takes a risk. Why should the law automatically put financial interest first? In many US states, if your home is financially “under water,” you can simply hand in the key and walk away. In this way, the bank also assumes part of the risk.
What if someone gets stuck? The US also offers inspiration there: you must be able to go bankrupt as an individual. Then you lose your possessions, but also all your debts: a clean slate. In the Netherlands, the only way out to go into debt restructuring for three years is to live on 35 euros in pocket money per week.
Klamer: “A very serious and humiliating punishment.”
Municipalities, Klamer believes, will have to play a much more active role in this in the coming months and years. “If we keep the system as it is now, a lot of lives will be ruined by the economic consequences of the corona crisis.”
The goal should be that everyone can remain productive and active.
“What do you think it costs society, socially and financially, when a large group of citizens are permanently chased by debt?”
Historian Rutger Bregman has made considerable publicity for it in recent years. However, apart from a few experiments, it has not yet been possible to translate his plans into policy. To corona. With governments around the world giving their citizens minimal income guarantees, a basic income seems closer than ever.
Australia distributes $ 750 per month to 6 million people. In the United States, ailing citizens can claim $ 1,200 checks to get through this time. Even the Financial Times, usually not in favor of far-reaching government funding, wants basic income “as a serious option on the table.”
Some countries also consider maintaining basic income after the crisis. Such as Spain, which wants to introduce a form of basic income in the short term to tackle the worst consequences of the corona crisis. Finance Minister Nadia Calviño said in a television interview that basic income there may become a “permanent measure.”
Whether there is also momentum in the Netherlands? “I actually think that chance is zero,” says Mark Sanders, associate professor of economics at Utrecht University. “We will now first save the economy with temporary measures, but after the crisis, the real solutions are no longer urgent.”
According to Sanders, this crisis shows that a form of basic income would also work in the Netherlands. “To save certain groups that are out of the boat, we now have to set up an entire system,” says Sanders. “The loss of our income now appears to be a risk that we all run. It would make more sense to insure ourselves against this as standard. ”
Sanders refers to the measures whereby self-employed workers can temporarily claim assistance, regardless of their ability. “That already resembles a basic income.” According to the senior lecturer, a permanent measure does not necessarily have to take the form of free money. “You can remember that if the income disappears, part of the amount can be earned with work for, for example, the municipality. There are many possibilities.’
For a long time it was a taboo: turning on the money press. The EU treaty prohibits this, for fear of inflation. But in practice, the European Central Bank (ECB) has been doing it for a long time, many economists argue. Now they ask: make this policy open and organize it properly.
It is formally called “monetary financing”. This means that governments do not borrow the money for their expenditure from, for example, pension funds and banks, but have it printed digitally by the central bank. The Bank of England announced Thursday to start with caution.
Formally, this freshly printed money is a central bank loan to the government. That loan may be “perpetual,” with zero percent interest. In fact: a gift. This prevents mountains of debt after the crisis. If they become real loans, sovereign debt across Europe will quickly return to the situation after the previous crisis. Back then, banks were on state drip.
Is it allowed to print money? The EU treaty prohibits the ECB from lending or giving money directly to governments. An unusual rule for central banks. Rens van Tilburg, director of the Sustainable Finance Lab at Utrecht University, explains: “Historically, central banks provide money quickly to the state in extreme circumstances, such as wars. However, inflation was rampant in the 1980s. Central banks had to hold back temporarily to combat them. That rule, useful at the time, is said to have entered the constitution of the ECB. ”
Van Tilburg and other prominent economists such as Lex Hoogduin, Bert de Vries, Willem Buiter and Paul de Grauwe are therefore proposing to lift the EU ban temporarily. For example, the ECB can finance crisis expenditure without additional debt formation.
In fact, monetary financing has been around for a long time, says Lex Hoogduin, professor of monetary economics in Groningen and former advisor to ECB President Wim Duisenberg. He points to “quantitative easing”, the buying up of public debt of European countries. As a result, the ECB’s balance sheet has doubled in the past ten years, to more than six times the Dutch gross national product. The difference: in quantitative easing, the national debt first goes to a commercial bank, which then earns as an intermediary. Moreover, these are real debts, which must be repaid.
The economists disagree on what to do with the new money. Hoogduin only wants to finance crisis expenditure monetarily. Van Tilburg advocates investing in education, research and the energy transition. A strong economy also makes debt more sustainable, he says.
While we still have to win the “war” against the virus, economists are already looking at reconstruction strategies. And in that we can possibly learn a lot from the German Wirtschaftswunder after the war. The core of the solution? Get the money for the precious contingency plans by taxing the wealth of the very wealthy a little, like Germany did during the reconstruction.
The idea of introducing a progressive wealth tax comes up every now and then. In 2014, the French economist Thomas Piketty advised, at the invitation of the House of Representatives, to tax the wealth of the very wealthy in the Netherlands. But the ideas did not find enough support.
With blame for contingency plans rapidly escalating during the corona crisis, proponents of wealth tax see an opportunity to get their proposal through. “It fits perfectly in the puzzle,” said Camille Landais, professor of economics at the London School of Economics.
Together with two colleagues, Landais suggests the idea of taxing the wealthiest 1 percent on their wealth at European level. Do you have assets of 2 million? Then you pay 1 percent tax on that. Do you have 8 million in credits, shares and real estate? Then it becomes 2 percent. And above the billion, the very rich pay 3 percent. “This will enable us to repay a large part of the European debt that we are now building up within ten years.”
Landais explicitly looks at the past. “This way we can see what works and what doesn’t. After World War II, France raised inflation to 50 percent a year to dismantle its massive debt, “he says. “Germany, traumatized by the hyperinflation in the 1920s, took a different path: progressive taxes.” That worked. Devastated Germany experienced rapid economic development after the war.
He believes in the plan, although it will be a big undertaking to get it through at European level, Landais also acknowledges. But, he says, if there is a time to do it, it is now. “There is the will to act. Everyone realizes that we have to take steps that we have never taken before. ”
Laboratories around the world are currently collaborating on corona vaccines and drugs. After unraveling the genetic makeup of the Covid-19 virus, Chinese researchers made their results publicly available worldwide. Can this approach be an alternative model for medical research, even after the crisis?
Spending on proprietary medicines is one of the fastest growing cost items in our medical system. Of the 23 most expensive medicines, the average expenditure per patient per year is more than 80 thousand euros. According to the Dutch Healthcare Authority, these costs are also displacing other medical care.
A growing number of voices is going to fundamentally revise this system. “Medical knowledge and medicine must be public and freely available,” said Dean Baker, chief economist at the Center for Economic and Policy Research of the United States and a professor at the University of Utah. Governments would then pay no more for medicines than the production price.
Commercial companies would therefore no longer independently invest in research, but with the money saved we can amply finance medical research publicly. In the U.S., the twenty most commonly prescribed drugs alone make their producers more profitable than what they invest in total in new research.
Moreover, advocates of “open science” say that this removes perverse incentives from market forces from the system. If there is less money to make from selling proprietary drugs, we will also have fewer redundant and even harmful pills – think opiates that are destroying countless lives in the US. In the Netherlands, hundreds of people also die from an overdose of oxycodone every year.
This would also put an end to the painful battle over which exactly expensive medicines belong in the basic package. Baker: “We impose that diabolical dilemma on ourselves. If medicines are produced at cost, only research is still expensive: once we have them, use is cheap. ”
As far as he is concerned, we are extending this post-crisis approach to other areas, such as climate change and agricultural technology.
“There are plenty of sectors where you can earn a lot commercially. But knowledge and technology on life and death matters should be publicly available. “
Is this going to happen? The opportunities seem limited. In Brussels, the pharmaceutical lobby is still supreme: it has seventeen times as much budget as all civil society organizations put together.